New DIR fee rules eliminate clawbacks, but may create cashflow challenges for pharmacies in the first half of 2024.
By this point, pharmacists are well aware of the direct and indirect remuneration (DIR) fee changes that will be implemented at the start of 2024: The Center for Medicare and Medicaid Services (CMS) has issued a final rule eliminating pharmacy benefit managers (PBMs) retroactive application of DIR fees, requiring instead that these fees are reflected in the negotiated price the patient pays at the pharmacy counter. The belief by CMS is that it will create greater transparency for patients and pharmacies—though not everyone is excited about the change.
Some have referred to this as a “DIR hangover”. Essentially, this hangover is higher up-front DIR fees coupled with lower patient copays, which will lead to cash flow issues and financial pain as all pharmacies will receive a low copay.
“The change may provide some relief to pharmacies on both the state and federal level; however, it will create a financial strain for unprepared pharmacies,” said Christopher Holler, PharmD, a pharmacist at Marley Drug in Winston-Salem, North Carolina. “On January 1, 2024, there will be higher up-front DIR fees which will be paired with lower patient copays. This will lead to cash flow issues in the first 2 quarters of the year. Pharmacies will need to prepare for this decrease in cash-flow.”
A pharmacy’s particular drug mix is more important than ever to the financial health of the business, and incremental improvements on reimbursement for such drugs can have a substantial impact on a pharmacy’s bottom line.
With the change in the definition of negotiated price approved by CMS, many plans have concluded that the previous form of DIR fee performance programs that have been pervasive since 2016.
Steven L. Bennet, a partner in Frier Levitt’s Healthcare Litigation Practice Group, noted the main takeaway from 2024 networks is lower reimbursement for pharmacies across the board, with few exceptions. “Going forward, we have seen several new performance programs funded by pharmacy fees created by PBMs, but it appears few, if any, plan sponsors have signed up for such a program because CMS has stated that these kinds of pharmacy fees would be considered pharmacy price concessions and would therefore be required to be reported by plans as part of the negotiated price of drugs,” Bennet said. “Thus, these pharmacy fee programs would have negative value to plan sponsors.”
One of the most impactful changes is the lower overall reimbursement in 2024. Therefore, with the possibility that reimbursement may vary wildly for certain specialty drugs, any specialty pharmacies that are still negotiating their 2024 Medicare Part D contracts should contact their pharmacy services administrative organization (PSAO) to discuss how to leverage their access to specialty drugs into impactful rate concessions for 2024.
“Pharmacies associated with a PSAO should reach out to their PSAOs for details about their Part D contracts, as these may vary by PSAO and individual pharmacy,” Bennet said. “Pharmacies should always be aware that their PSAOs are responsible for negotiating the best possible contracts with PBMs…[A]PSAO chooses whether or not to accept the terms offered by PBMs, pharmacies should be discussing these decisions with PSAOs and offering feedback regarding those choices.”
DIR fees are one of many ways PBMs or payers, use a loophole to strip away profits from non-chain or independent pharmacies, according to Neil Owens, president and COO of Medicure, a Canadian pharmaceutical company focused on the development of innovative and affordable therapeutics for the US market.
“Currently, half a year after a pharmacy fills a prescription, PBMs can take back money paid to independent pharmacies via DIR fees,” Owens said. “The PBMs claim this is due to the pharmacy’s performance based on quality measures. The charges may be classified as normal administrative, service, and network access fees.”
Because DIR fees are now upfront, there is no longer retroactive clawback which, Owens explained, can be both good and bad. “Because these fees are not known upfront, DIR fees make balancing the books at a pharmacy quite difficult,” he said. “Once DIR fees are applied, a pharmacy will often lose money on a prescription, especially for branded medications. Pharmacies can limit their impact on DIR fees by filling more 90-day fills and primarily filling generics. However, they are often tied to what/how a prescription is written, and many times this is out of their hands.”
Frier Levitt is still advocating for relief for all pharmacies through amendments to the Part D Act, and urge individual pharmacy owners and associations to continue putting pressure on their legislators to vote in favor of such legislation.
“With respect to political changes, every voice being raised to every politician in Congress is necessary to see positive legislative for pharmacies,” Bennet said. “Members of Congress take seriously feedback from their constituents and the more they hear their constituency agreeing on reimbursement relief for pharmacies, the more of a priority that issue becomes. It is crucial that pharmacies continue to write emails and letters, and to call the offices of their elected federal officials, to push for reform.”